Social Connectedness and Local Stock Return Comovement

We explore the role of social connectedness in explaining the stock return comovement with the local portfolio. Using the Facebook Social Connectedness Index, we find the firms headquartered in the county with the higher average social connectedness with other counties exhibit lower local return comovement. Further, we explore the relationships between county-level social capital and social connectedness in affecting the local return comovement. Consistent with the information view of comovement (Veldkamp, 2006), we find the effects of social connectedness on local return comovement are more pronounced among the firms with higher pricing difficulties or during the periods with lower information production.